Last week, we heard that Citigroup, like so many other financial companies in peril, is going to raise base salaries by as much as 50 percent in order to discourage the culture of excessive risk-taking in pursuit of big bonuses. Newsflash! Citigroup: there's a foolproof way to shift away from high-stakes gambling in the financial sector that makes perfect economic sense: hire more women.
In a report released last Wednesday entitled Women in Fund Management: A Road Map for Achieving Critical Mass -- and Why it Matters, the National Council for Research on Women highlights the gender differences in investment approaches and makes a solid business case for diversifying the top echelons of the financial sector.
According to recent research, women-owned funds on average outperform funds in general. Hedge Fund Research Inc. has just released data showing that women-owned funds delivered an annual return of 9.06 percent compared with 5.82 percent among all hedge funds from 2000 to date. Yet, despite these results, a scant 10 percent of all traditional mutual fund managers are women and in 2008, women managed a mere 3 percent of the approximately $1.9 trillion invested in hedge funds.
So why the lack of confidence in women's performance? Debora Spar, President of Barnard College and a former Harvard Business School professor, hints at the answer: "Women make financial decisions differently than men do. They don't make them better; they don't make them worse. In the aggregate, they make less risky decisions."
Indeed, numerous studies confirm Spar's assertion. The Center for Financial Research at the University of Cologne found that women managers tend to take less extreme risks and adopt more measured investment styles than their male peers. Women also tend to favor a more detailed, comprehensive approach, according to a study published in the International Journal of Bank Marketing.
This same study found that men are more likely to simplify data and make decisions based on one overarching schema. Additionally, a 2008 study of male traders by researchers at the University of Cambridge suggests a direct link between increased testosterone and a willingness to take risks, particularly following a series of profitable trades.
Maria Chrin, a founder and managing partner of Circle Financial Group, also argues that these differences should be seen, not as cause to rank one gender over the other, but as a clear indicator that we need men and women to balance each other out at the top levels of financial management. She explains: "What we have found is that the talent that women bring to the table is complimentary to a portfolio where there already are mangers who are willing to take on a lot of risk."
Unfortunately, women drop out of the financial sector at every rung of the career ladder for myriad reasons. For starters, women have much less access to capital; only four percent of venture capital, for example, gets invested in women-owned businesses. Studies show that women aren't socialized to market themselves as aggressively, nor are they as integrated into financial networks as their male peers.
But the problems begin much earlier. Girls, despite performing on par with boys on math and science tests, tend to avoid classes in these areas and still make up only 30 percent of MBA graduates. We need to look hard at how math and technology curricula are designed and how technology toys and video games are marketed so that they target and capture the interest of girls.
Also, young people, as they say, cannot become what they cannot see. We must increase the visibility of female role models in the financial sector and highlight the practical applications of math and science for girls from an early age.
Most importantly, it's time that the financial sector -- at all levels, but especially at the top -- institute what we at the National Council for Research on Women identify as the "critical mass principle." We are calling on the sector to convene a group of industry leaders -- women and men alike -- to determine what policies are needed for achieving significant numbers of diverse leaders. This picture needs to include measurable benchmarks and guidelines for holding companies accountable, and draw on lessons learned from other male-dominated fields -- electoral politics, science, math and engineering -- in which progress has been made selectively in diversifying the ranks.
Making room for women at the table isn't only a nice or even ethical thing to do (although these are certainly part of it). Rather, it's a case of getting the best and the brightest, the most diverse and innovative minds out there to manage our financial system so that we can ensure a more secure and sustainable future for everyone.
Jacki Zehner, lead sponsor of the report and a founding partner of Circle Financial Group, sums it up: "We need to imagine a world where women, and like-minded men, use their economic clout to drive needed change."